NEW DELHI: The Ministry of Finance has issued a series of notifications to implement a major shift in tobacco taxation, effective February 1, 2026. This new regime, established under the Central Excise (Amendment) Act, 2025, replaces the current GST compensation cess with a combination of high excise duties and a new health-focused cess.
The government has significantly revised the excise duty rates for a wide range of tobacco products to maintain high tax incidence after the compensation cess ends. Gutkha now carries the highest duty at 91%, chewing tobacco and jarda scented tobacco will attract 82% duty.
In case of Cigarettes, rates vary by length and filter type, ranging from ₹2,050 to ₹8,500 per thousand sticks. Pipe and cigarette smoking mixtures attract a massive 279% duty. Handmade bidis remain explicitly protected with a low duty of ₹1 per thousand to safeguard workers.
These rates would be levied over and above 40% GST.
The new rules also specify capacity-based duty for smokeless tobacco. For manufacturers of chewing tobacco and gutkha, the duty is now tied directly to the speed and number of packing machines in a factory.
Taxation is based on the maximum capacity of production per machine. For example, a machine producing gutkha at a speed of 500 pouches per minute with a retail price of Rs 8 carries a monthly duty of Rs 3.28 crores.
For machines operating above 1,500 pouches per minute, duties are calculated using specific formulas, such as (0.92 X S)/ 450 for gutkha, where 'S' is the machine's rated speed.
Strict compliance and surveillance
To curb tax evasion, the Ministry has introduced rigorous monitoring requirements. Manufacturers must install functional CCTV systems covering all packing areas and preserve footage for 48 months.
All manufacturers must file a detailed declaration (Form CE DEC-01) by February 7, 2026, outlining their production factors and machine technical specs.
Machine speeds and gearbox ratios must be certified by a Chartered Engineer using Form CE CCE-01. No notified tobacco goods can be exported without the prior payment of duty.
